Reliance Industries debt reduction plan: Stake sale to Aramco, BP

  • Aug 13, 2019
  • The Financial Express

With a promise to turn Reliance Industries (RIL) into a zero net debt company in 18 months, chairman Mukesh Ambani on Monday announced Saudi Aramco will buy a 20% stake in its oil-chemicals division for $15 billion. The Aramco investment, together with the sale of a 49% stake to BP in the fuel-retailing entity for Rs 7,000 crore, is expected to net the company Rs 1.1 lakh crore.

Addressing shareholders at RIL’s 42nd annual general meeting, Ambani outlined a strategy that would see the company reap the benefits of the Rs 5.4-lakh-crore investments in the last five years, especially the telecom platform for which he said the capex was complete. Apart from a clutch of new initiatives, there is a plan to monetise the retail and telecom businesses which would help deleverage the company’s balance sheet loaded with a net debt of Rs 1.54 lakh crore. The game plan Ambani asserted would see RIL grow its operating profits at 15% annually in the next five years with the consumer business contributing about 50% to consolidated Ebitda in a few years from 32% at present.

RIL ended 2018-19 with consolidated revenues of Rs 6.23 lakh crore, a PBDIT of Rs 92,656 crore and a net profit of Rs 39,588 crore. Analysts at Credit Suisse have pointed out how RIL has been free-cash-flow negative for six years now with total liabilities at the end of March, 2019 at $65 billion. Interest costs amounted to a high 44% of Ebit, they said.

The RIL stock has been under pressure for the last few months. Ambani elaborated on a telecom strategy that would see four new growth engines capitalise on the RJio network — built at a cost of Rs 3.5 lakh crore and its 340 million mobile subscribers. Among them is an IoT initiative which he estimated as a Rs 20,000-crore-per-year opportunity.

Moreover, Ambani said the company’s new commerce initiative, aimed at transforming the unorganised retail market with its three crore merchants and kiranas, was a $700-billion opportunity. RIL plans to empower them with its end-to-end digital and physical distribution stack. The transaction with Saudi Aramco — at an enterprise value of $75 billion — will cover all of RIL’s refining and petrochemicals assets, including 51% of the petroleum retail JV and is expected to fructify by March 2020. The proceeds will go to the company’s treasury pool.

Analysts have noted that the refining and chemicals businesses have seen margins trending down after 2017-18. Ambani said the India-centric upstream business in partnership with BP will bring over 3 tcf of gas resources to production starting next year, generating an ebitda in excess of $ 1 billion annually for over a decade.

RIL’s tower assets have been transferred to an InvIT and the company is in the process of finalising investments by large global institutional investors.

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